Originally designed for first-home buyers, but now available more widely, introductory loans offer a discounted interest rate for the first 6 to 12 months, before the rate reverts to the usual variable interest rate.
Benefits
- Lower regular repayments for an initial ‘honeymoon’ period.
Risks
- Loans may have restrictions, such as no redraw facilities, for the entire length of the loan.
- You may be locked into a period of higher interest rates at the expiry of the honeymoon period.
You can pay into and withdraw from your home loan every month, so long as you keep up the regular required repayments. Many people choose to have their salary paid into their line of credit account. This type of loan is good for people who want to maximise their income to pay off their mortgage quickly and/or who want maximum flexibility in their access to funds.
Benefits
- You can use your income to help reduce interest charges and pay off your mortgage quicker.
- Provides great flexibility for you to access available funds.
- You can consolidate spending and debt management in a single account.
Risks
- Without proper monitoring and discipline, you won’t pay off the principal and will continue to increase your level of debt.
- Line of credit loans usually carry slightly higher interest rates.
The basic variable loans generally have fewer loan features than the general loans. Generally, repayment term is up to thirty years. The features and rates offered by different lenders depend on the amount you are borrowing, your credit score and some other factors.
Benefits
- A first home buyer looking for flexible features with an offset account and free redraws.
- It offers a much lower rate than standard variable rate loans.
- Extra unlimited repayments allowed anytime.
Risks
- If the interest rate rises, the amount of monthly repayment also increases.
- It offers fewer features than the general loans.
Your loan amount is split, into partly fixed, partly variable. You enjoy some of the flexibility of a variable loan along with the certainty of a fixed rate loan.
Benefits
- Your regular repayments will vary less when interest rates change, making it easier to budget.
- You can get some very sharp rates by choosing a 50/50 split option.
- If interest rates fall, your repayments will reduce and so your ability to pay loan quicker.
Risks
- If interest rates rise, your regular repayments on the variable portion will too.
- Only limited additional repayments of the fixed rate portion are allowed.
- You will be penalised financially if you exit the fixed portion of the loan early.
Standard variable loans are the most popular type of home loan in Australia. Interest rates go up or down over the life of the loan depending on the official rate set by the Reserve Bank of Australia and funding costs. Your regular repayments pay off both the interest and some of the principal
Benefits
- If interest rates fall, the size of your minimum repayments will too.
- Standard variable loans allow you to make extra repayments. Even small extra payments can cut the length and cost of your mortgage.
- Offset account can be attached. Ability to redraw when required.
Risks
- If there is a financial crisis then smaller lenders presently offering cheap rates will be unable to maintain such cheap rates with rising costs of funds and you potentially could lose tens of thousands if unable to refinance. Cheap is dangerous.
- Increased loan repayments due to rate rises could impact your household budget.
- You need to be disciplined around the redraw facility on a standard variable loan.
You repay only the interest on the amount borrowed usually for the first one to ten years of the loan. Because you’re not paying the principal, your monthly repayments are lower. At the end of the interest-only period, you will begin to pay both interest and principal. These loans are especially popular with investors who plan to pay off the principal when the property is sold, having achieved capital growth.
Benefits
- Lower regular repayments during the interest only period.
- If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.
Risks
- At the end of the interest only period you have the same level of debt as when you started.
- If you’re not able to extend your interest-only period, you could face the possibility of increased repayments.
- You could face a sudden increase in regular repayments at the end of the interest-only period.
The interest rate is fixed for a certain period generally up to 5 years. This means your regular repayments stay the same regardless of changes in interest rates. At the end of the fixed period you can decide whether to fix the rate again or change to a variable loan.
Benefits
- Your regular repayments are unaffected by increases in interest rates.
- You can manage your household budget better during the fixed period, knowing exactly how much is needed to repay your home loan.
- Some lenders do allow redraw and unlimited repayments.
Risks
- If interest rates go down, you lose out on cheaper interest rates. Your regular repayments stay the same.
- You can end up paying more than someone with a variable loan if rates remain higher under your agreed fixed rate for a prolonged period.
- There is very limited opportunity for additional repayments during the fixed rate period.
- You will be penalised financially if rates move lower and you decide to exit the loan before the end of the fixed rate period.
A bridging loan is a short-term loan that finances the purchase of a new property while you are selling your existing property. Bridging loan can also provide finance to build a new home while you live in your current home. You will normally have 6 months to sell the existing property; or 12 months if a new property is being constructed
Benefits
- Interest Capitalisation – Ability to capitalise interest to cover the repayments on both properties, to allow you some financial breathing space while you wait for the sale of your existing property.
- Ability to borrow up to 100% of the new property being purchased if you have sufficient equity.
Risks
- If unable to sell the house in 12 months then there is pressure to make full loan repayments on both the loans.
- Bank may repossess both the homes if repayments are not met timely.
Building your own house can be a wonderful and fun experience – but it can also be a long and expensive process. However, most people cannot afford to pay for the cost of home construction up front, and getting a mortgage can be tricky.
A standard mortgage loan is not going to cut it – but you may be eligible for a special type of loan known as a construction loan.
Benefits
- Financial security – since payments (Progress draws) are made to the contractor or builder as the work progresses, you avoid losing money over incomplete (or poor) work.
- Savings on interest – with a regular home loan, you pay interest on the lump sum, whereas with a construction loan, interest is paid on the amount of the drawn down only.
- Better cash flow – since your loan remains interest only until your construction or renovation is complete, you have a higher cash flow. This can be incredibly helpful, especially if you have to rent temporary while the work is being carried out.
Disadvantages
- Higher deposit – with a higher loan to value ratio for construction loans, you might need a large deposit in order to be approved.
- Higher interest – interest rates on construction loans are generally higher than on typical home loans.
- Get ready for paperwork and expenses – depending on your lender, securing a construction loan may require you to have council approval for building plans, as well as a fixed-price building contract.
Professional packages are generally offered on home loan amounts over a certain (higher) value. Whilst originally designed for higher valued clients such as professionals, the loan is now available to anybody who takes a loan over a particular amount say $150,000 and above. This varies from lender to lender. Usually, the greater the loan amount the more likely the lender will be able to offer additional features or benefits, such as lower interest rate and discounts on other lender products.
Benefits
- Discount on Interest Rates, offers a free credit card and discounted insurance and access to other products and services.
- Cheaper than Standard variable rate loans and no application fees.
- Some clients prefer having all their financial products with the one institution
Disadvantages
- Annual fees apply to the life of the loan.
- Discounts on other service and products may not be cost effective to offset the annual fee. Basic variable loans may be a cheaper option.
If you are any one of the below mentioned profession you will not have to pay Lenders Mortgage Insurance.
Anaesthetist, Cardio Thoracic Surgeon, Cardiologist, Clinical Pharmacologist, Cosmetic Surgeon, Dentist, Dermatologist, Ear and Throat Surgeon, Emergency Surgeon, Endocrinologist, Gastro Intestinal Surgeon, Gastroenterologist, General Practitioner, General surgeon, Gynaecologist, Haematologist, Hepatologist, Immunologist, Nephrologist, Neurosurgeon, Neurologist, Obstetrician, Oncologist, Ophthalmologist, Optometrist, Oral and Maxillofacial Surgeon, Orthopaedic Surgeon, Orthopaedic Registrars, Otolaryngologist, Paediatric Surgeon (Neonatal / Perinatal), Pathologist, Plastic Surgeon, Psychiatrist, Radiologist, Reconstructive Surgeon, Respiratory/Thoracic ,surgeon, rheumatologist, Surgeons, Urologist, Vascular Surgeon, Veterinarian, Dentists, Chiropractors, Optometrists, Pharmacists, Law Professionals, Energy Mining & Resource Professionals
Benefits
- Access to discounted pricing on loans, insurance and other products and services
- Huge Savings on Mortgage insurance ($16,650 based on a loan for $630,000 and 90% lending ratio) which can far outweigh the cheaper home loan rates.
- Need less deposit to buy a property.
Disadvantages
- Rate may/may not be slightly higher than other competitors.
Australian Government welcomes foreign real estate investment. If you are an Australian citizen or permanent resident living temporarily overseas or on a temporary visa living in Australia you are able to borrow up to 90% of the value of a property you are planning to purchase in Australia.
Non-resident home loans are specifically intended for expats, foreign investors who are interested in real estate purchases in Australia. Depending on your status or the type of visa you hold you can borrow up to 80% of the value of the property. Depending on your residency status you may be able to borrow a higher amount.
Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. A low doc loan may be your best opportunity to borrow money if you do not have financials or tax returns or have a bad credit history.
Benefits
- Lower requirement for evidence of income. May overlook non-existent or poor credit rating.
- Ability to borrow without waiting for tax returns or financials to be completed.
- Ability to consolidate debts and save tens of thousands.
Risks
- You will probably pay higher interest than with other home loan types, or may need a larger deposit, or both.
- There is a risk fee if you borrow a high loan to valuation ratio.
If you’re planning to establish an SMSF and are interested in buying a residential property then a SMSF loan is well suited. However purchasing an investment property with borrowed funds needs to be consistent with your SMSFs investment strategy, your SMSF Trust Deed needs an express power to borrow, a limited recourse loan, so other assets of your SMSF are protected, and you may be entitled to receive income tax and negative gearing benefits. Borrowed funds may also be used, towards ‘repairs’ and ‘maintenance’ of the property, however ‘improvements’ are not permitted.
Benefits
- Pay debt down faster
- Reduced cash flow commitment
- Reduced tax on other income
- Increase the size of your SMSF without contributions
- Concessional tax treatment
Disadvantages
- Interest rates are generally higher than traditional loans and lending ratios are restricted
- Establishment costs can be high given the unique structure of an SMSF.
- Loans in SMSF can be time consuming and onerous as a lot of paperwork is required than traditional loans.
- Gearing risks – should the value of your investment fall then the lender can foreclose on your loan or you fail to make loan repayments
- Superannuation rules affecting property ownership
Buying your first home you are open to a large range of home loan options. As a First Home Owner you may be entitled to a First Home Owners Grant. Choosing a loan can be very tricky if you are doing it for the first time as there a lot of factors to consider. Talk to a highly experienced mortgage broker is the best way forward as they can offer you a choice from their panel of 33 lenders and hundreds of products to tailor a solution to suit your requirements and objectives.
Benefits
- Choice of various loan packages to suit every individual
- The First Home Owner grant can assist you with much needed deposit
- There may be no stamp duty if the purchase price is within limits.
Disadvantages
- There may be a limited choice for certain individuals and employment type.
- Lenders Mortgage Insurance can be a huge cost if you borrow a high loan to valuation ratio.
A reverse mortgage allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options. While no income is required to qualify, credit providers are required by law to lend you money responsibly so not everyone will be able to obtain this type of loan.
Interest is charged like any other loan, except you don’t have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.
You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.
Benefits
- No monthly payments due during length of the loan
- The value of the house, not the homeowner’s current income is used to determine eligibility
- Lenders cannot go to your heirs for repayment of your loan if the house sells for less than what was borrowed
- As the owner’s age increases and the home equity increases, the amount that can be borrowed increases
Disadvantages
- Interest rates are generally higher than average home loans.
- The debt can rise quickly as the interest compounds over the term of the loan – this is the effect of compound interest and is something you need to be aware of before making any decisions.
- The loan may affect your pension eligibility.
- You may not have enough money left for aged care or other future needs.
- If you are the sole owner of the property and someone lives with you, that person may not be able to stay when you die (in some circumstances)
A non-conforming loan is a loan that fails to meet bank criteria for funding. Non-conforming loans are mortgages that do not conform to a lender’s typical loan underwriting criteria. This may include situations where the applicant has a poor credit history, or who may not have been employed long enough to show a history of earning an income. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it.
Benefits
- Ability to still get a loan with a poor credit history and unlimited defaults.
- Ability to consolidate a number of loans and save tens of thousands
- Ability to get a loan to pay off urgent/ATO debts.
- Less paperwork than traditional loans.
Disadvantages
- Entry costs can be high and in view of the default risk interest rates are higher than traditional loans.
A non-conforming loan is a loan that fails to meet bank criteria for funding. Non-conforming loans are mortgages that do not conform to a lender’s typical loan underwriting criteria. This may include situations where the applicant has a poor credit history, or who may not have been employed long enough to show a history of earning an income. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it.
Benefits
- Ability to still get a loan with a poor credit history and unlimited defaults.
- Ability to consolidate a number of loans and save tens of thousands
- Ability to get a loan to pay off urgent/ATO debts.
- Less paperwork than traditional loans.
Disadvantages
- Entry costs can be high and in view of the default risk interest rates are higher than traditional loans.
A non-conforming loan is a loan that fails to meet bank criteria for funding. Non-conforming loans are mortgages that do not conform to a lender’s typical loan underwriting criteria. This may include situations where the applicant has a poor credit history, or who may not have been employed long enough to show a history of earning an income. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it.
Benefits
- Ability to still get a loan with a poor credit history and unlimited defaults.
- Ability to consolidate a number of loans and save tens of thousands
- Ability to get a loan to pay off urgent/ATO debts.
- Less paperwork than traditional loans.
Disadvantages
- Entry costs can be high and in view of the default risk interest rates are higher than traditional loans.